Lawmakers say state should pay city for tax break errors

Scott Calvert and Luke Broadwater, The Baltimore Sun

Several lawmakers are calling on the state to compensate Baltimore amid new disclosures that errors in the historic property tax credit program for homeowners have cut revenue to the city over the past several years.

"The state should make us whole," City Councilman Bill Henry, vice chairman of the taxation committee, said Wednesday. "It's not fair to ask the city's homeowners to pay more after the state government told them how much it was going to be. They're the ones that should be making the payments, not the homeowners and not city government."

Up to 300 Baltimore homeowners are seeing a jump in their property tax bills because the city says they received excessive credits for historic renovations. While city officials say they won't seek back taxes from those who benefited from the miscalculations, property owners will have to pay more than they expected, starting with the fiscal year that began July 1.

The increases range from hundreds of dollars to several thousand. For example, the owner of a rowhouse in Station North saw his annual bill rise eightfold — from $244 to nearly $2,000.

And because the historic tax credit lasts for 10 years, the increases will amount to more than $15,000 for some homeowners.

Del. Curt Anderson, chairman of the city's House delegation in Annapolis, said Gov. Martin O'Malley and Mayor Stephanie Rawlings-Blake should sit down and devise a fair solution. He suggested that the state might cover a third of the uncollected taxes from prior years, with part of the increased fees in the future phased in for homeowners. All three are Democrats.

O'Malley isn't going to "weigh in" on the dispute, a spokeswoman said. Owen C. Charles, a state assessments official, declined to comment on suggestions that state government should pay. City officials bear partial responsibility for some errors, he said, adding that certain problems cited by the city actually reflect different approaches to calculating credits.

Anderson pointed a finger at the state agency that until last year calculated all of the historic credits for the city.

"The city is not at fault," he said. "The taxpayer is not at fault. There has to be some way for the state and city to come up with a plan." While the city "clearly" needs revenue, he said, "we don't need it as bad as some of these folks who are getting these increases."

On Wednesday, Rawlings-Blake blamed state officials. Aides said the administration will have more to say Thursday.

City officials have not said how much money they failed to collect from homeowners, but similar problems led the city to underbill several commercial properties more than $1.5 million over a number of years, according to a Baltimore Sun analysis last year.

City Councilman James B. Kraft has asked the city to honor the inflated credits until they expire. Councilman Henry echoed that call Wednesday, with other council members expressing similar views. Kraft said it is not fair for the city to raise taxes on homeowners who received written assurances from the state about how their discount would be calculated.

Under the historic credit program, the value of approved home renovations goes untaxed by the city for 10 years. But city officials say the state exempted too much value, leading to inflated credits that deprived the city of rightful taxes.

The head of Live Baltimore, a nonprofit group that promotes city living, said he "cringed" Wednesday when he read in The Sun that tax bills recently jumped for hundreds of homeowners.

"It's the last thing we want to see," said Steven Gondol, the group's executive director. "I hate seeing hardships. I hate seeing people impacted this way. It doesn't appear any people were maliciously taking advantage of the system."

He stopped short of endorsing suggestions that the city honor the credits but said, "We recognize the commitment these people are making to the city and hope we can find a compromise."

Gondol, it turns out, is among those with a higher tax bill because of what the city calls calculation errors. He and his wife saw a $369 increase on the bill for their Patterson Park rowhouse, which they renovated in 2008. He isn't sure exactly what happened in his case to cause the change.

Like other affected homeowners, Gondol received a postcard in the mail shortly before his tax bill arrived. The postcard informed him that his historic credit had been reduced "due to an incorrect calculation" and gave him a phone number to call for more information.

Another affected homeowner, Harrison Long, said he was shocked when he got his new tax bill in the mail a few weeks ago and saw he owed $1,926 — an eightfold increase over last year's $244 bill.

In 2007 he paid the city $56,000 for a rowhouse shell in the Station North neighborhood, then spent $155,000 to turn it into a home. He says the city promoted the 10-year historic credit as a way for him to keep his property taxes low.

Long says the surprise increase threw his mortgage escrow account out of whack and comes at a time when he has struggled to make monthly house payments. He believes the city has effectively breached the contract it made when he bought the house and applied for the credit.

"I feel like I have a deal," he said. "I wasn't trying to skirt the system. I filled out a lot of paperwork to get what I got."

Long is hoping the city will restore his credit to its previous level, not just for this year but all four remaining years of the credit. "That would be the ultimately fair thing to do," he said.

"My general frustration is that despite all the hard work the city and state have put into property taxes, there is still a lot of stuff to be fixed," he said. "We find inconsistencies all the time."

Cole said he sees a distinction between the two kinds of errors that Kraft said city officials described to him at a briefing last week.

In some cases, the state put into writing a pre-renovation assessment figure that the city now says should have been higher — meaning owners should have received a smaller tax break every year since the credit began.

Those homeowners "shouldn't be punished" with higher bills, Cole said. "I just think that's inherently unfair, particularly for people who based their affordability on that number."

But Cole agrees with the city in principle that homeowners should be taxed going forward if the state wrongly exempted not just the value of the renovation, but also market-driven appreciation. Even so, he said, he would need to see a "real world example" to make a firm conclusion.

City Council Vice President Edward Reisinger said state and city leaders should sit down together to discuss the problems and find solutions specific to the affected homeowners.

"Everybody's got to take a deep breath and look at this," he said. "If I was one of those people that the tax credit [was] the reason they bought the house, and now they owe thousands and thousands of dollars, that's not right. It sends a negative message out."

City finance director Harry E. Black said Baltimore officials were close to addressing all historic tax credits that have "issues."

"The state has the authority and responsibility for the assessing process," he said. "We're pretty confident we've been able to capture the universe of accounts that may have issues. We've not done 100 percent cleanup, but we're close."